Nova Scotia sets new crowdfunding rules

Companies that have those things going for them may be in the best position to take advantage of new equity crowdfunding rules in Nova Scotia, says a Halifax entrepreneur.

But Andy Osburn, founder and CEO of Equals6, also said it will take time for startups and smaller firms in Atlantic Canada to figure out whether they want to get financing by selling shares or debt to Internet-based investor pools.

“It’s one of those things where the people who are running the organization have to look long and hard at what’s required to actually be successful with it,” Osburn said in a recent interview. “It’s not going to be for everybody.”

The Nova Scotia Securities Commission adopted a set of equity crowdfunding rules for startups in May. Further regulations, which take effect Jan. 25, allow larger amounts of so-called micro capital to be raised.

Regardless of which set of rules is used, Nova Scotia companies must raise their private equity via a digital portal. The specialized websites, which host campaigns and handle investors’ money, are vetted by the securities regulator and have rules under which to operate.

The commission doesn’t oversee other types of crowdfunding, such as charitable giving or even companies pre-selling a product or service. The latter type of campaign, found on popular websites such as Kickstarter and Indiegogo, is called reward-based crowdfunding.

When it comes to private equity, Nova Scotia is one of seven provinces to adopt common crowdfunding rules. That means companies here can raise capital in those areas; local investors can also find opportunities there.

But there are some variations in the securities-based regime across the country, complicating the new system. British Columbia and Ontario, for instance, are partially on board.

The western province has adopted the startup equity rules, with the lower equity amounts, that have been in place since the spring. Ontario, meanwhile, is part of the larger investment regulations that start this month. But the investor limit is different in that province.

While the rules are complex, an official with the Nova Scotia Securities Commission said they’re designed to help startups and smaller companies raise capital while also protecting investors.

“It may be a riskier option for investors, but it allows other opportunities that may not have been available to them before in this part of the regulated capital market,” said Abel Lazarus, senior securities analyst.

Both sets of crowdfunding rules include disclosure and reporting requirements for companies and portals alike. More information and effort is involved under the rules for bigger campaigns.

Another Halifax tech entrepreneur also thinks the crowd approach needs time to catch on.

“In the early days, it will be mature entrepreneurs and more mature companies that will use it,” Sean Sears said.

The CEO of sageCrowd, a science of learning software firm, said the startup regime will likely get traction first because there’s less red tape involved. The second set of rules for raising larger amounts of capital aren’t much different than securities requirements for publicly traded companies, Sears said.

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“Acting like a public company is an administrative burden that has a significant cost,” he said.

And it’s not just equity issuers who have to figure out whether to use an online investment syndicate. Prospective portals must also see if there’s a market.

Sears and his partners were planning to launch such a service for Atlantic Canadian startups. But after seeing which provinces have signed up, they’re setting their sights south of the border instead.

The United States is also in the process of developing its system of equity crowdfunding.

Sears said the hurdle here was not having full access — or any at all — to campaigns or investors in Ontario and Alberta.

“If you were thinking about where there might be ‘Maritime money’ … it’s in those two provinces. And, in all likelihood, a portal from Atlantic Canada is not going to be able to allow those investors to invest.”

He said he expects about 10 investment portals will try to build equity communities in Canada under the common rules for larger crowdfunding.

Two national digital sites have been vetted so far in Nova Scotia under the startup regime that has been in place for about seven months, the securities commission said.

Osburn had input into the province’s rules as the regional representative for the National Crowdfunding Association of Canada. He said the new system is a start, and Nova Scotia is on par with many parts of Canada and the U.S. — and ahead of some — when it comes to introducing equity crowdfunding.

“It’s not like we’re lagging here. These are issues that are being experienced all across the country and in other countries as well.”

The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1300+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit www.ncfacanada.org.